Bankruptcy is a federal court process to help people get a fresh financial start. It works by getting rid of debt they can’t manage or making arrangements to repay unmanageable debt. This is called “discharging debt.” The person filing for bankruptcy is called the ‘debtor’ and the people or businesses owed money to are called ‘creditors.’
The right to file for bankruptcy is governed by federal law, called the Bankruptcy Code. Bankruptcy cases are filed in federal courts. In most cases, once you file for bankruptcy your creditors have to stop trying to collect debts from you until the bankruptcy is complete.
Bankruptcy is not the right solution for every person. It can’t fix every financial problem.
Bankruptcy may make it possible for you to:
There are many rules you have to follow when filing for bankruptcy. It can be very hard to file for bankruptcy on your own. It is often best to talk to a lawyer before filing.
If this is your scenario, we advise you to contact a lawyer. We do not suggest representing yourself.
No. The Bankruptcy Code says that certain debts cannot be discharged (wiped out). These debts include:
Bankruptcy can’t help you:
Yes. You can keep at least some of your property in a bankruptcy. The law says the creditors can’t get at certain property. This property is “exempt.” But there are limits on how much property you can claim as exempt.
If you live in Kentucky, you can choose to follow the Kentucky limits or the federal limits on exempt property. You must pick one. You can’t mix and match. But if Kentucky has an exemption that is not listed in the federal exemptions, you can use that even if you chose to use the federal exemptions. This is a list of some of the most common exemptions and their limits as of May 1, 2020:
Note: equity is what is left when you subtract what you owe on something from what it is worth right now.
Common exemptions and the amount exempt
Equity in your home:
Kentucky Limit: $5,000
Federal Limit: $25,150
Equity in your car or truck:
Kentucky Limit: $2,500
Federal Limit: $4,000
Tools of the trade:
Kentucky Limit: $300
Federal Limit: $2,525
Household goods:
Kentucky Limit: $3,000 total
Federal Limit: $625/item, up to $13,400 total
Wild card*:
Kentucky Limit: $1,000
Federal Limit: $1,325
Benefits (like SSI, unemployment compensation, veteran’s benefits, public assistance):
Kentucky Limit: No Limit
Federal Limit: No Limit
* A wild card exemption is one you can use on any property you choose.
Note: There are other exemptions, this list is only a sample.
Married couples who file a joint bankruptcy in Kentucky can “double” the exemption amounts. This means if you and your spouse file a joint bankruptcy, you can each claim the full exemption amount for any property belonging to you. Note: you can only claim an exemption on property that only belongs to you.
There are 2 main types of bankruptcy. Chapter 7 and Chapter 13. The names come from the part of the federal Bankruptcy law that they come from.
You can file bankruptcy without a lawyer. This is called filing pro se. Note: getting advice from a lawyer with experience is highly recommended. Bankruptcy has long-term financial and legal outcomes.
If this is your scenario, we advise you to contact a lawyer. We do not suggest representing yourself.
Chapter 7 bankruptcy is the most common type of bankruptcy. It is usually the simplest. It is also known as “straight bankruptcy.” In a Chapter 7 bankruptcy, you can keep certain exempt property. Non-exempt property is turned over for sale to pay creditors.
Most debts, but not all, are discharged in a Chapter 7 bankruptcy. This means that you don’t have to pay them.
To file a Chapter 7 bankruptcy, you must have very low income and assets.
Chapter 13 bankruptcy is like a repayment plan. It can be an option for you if you have a regular income but can’t pay all your debts. Under Chapter 13 bankruptcy, the Bankruptcy Court approves a plan for you to pay your debts in installments over a certain time period. If the plan is approved, you make payments to a ‘trustee.’ This is a person who has control over your money. The trustee makes the payments to your creditors.
Under Chapter 13, you can generally keep all of your property for as long as you keep making the installment payments. In a Chapter13 bankruptcy, you have to pay your creditors in full if you can. If that isn’t possible, you have to pay the creditors all the money that you have left over after paying for your necessary living expenses. This is called ‘disposable income.’ You have to do this for 3-5 years.
Chapter 13 bankruptcy is very complicated. You often need a lawyer to help you through the process.
If this is your scenario, we advise you to contact a lawyer. We do not suggest representing yourself.
It is possible to file a bankruptcy case without a lawyer, but it is not recommended. The process is complex and hard, and you might end up losing property or other rights if you don’t know the law. Filing bankruptcy is complex and takes patience and careful preparation.
If you start a bankruptcy case and:
You may be barred from filing again for many years. Hiring a lawyer seems expensive but it can be worth it in the long run. In a Chapter 13 bankruptcy, the lawyer fees can be paid through the repayment plan.
If this is your scenario, we advise you to contact a lawyer. We do not suggest representing yourself.
Judgment proof means that you have no assets or income that a creditor can take to pay your debt. You may be judgment proof if all the following are true:
NOTE: if you are judgment proof, it usually doesn’t help you to file for bankruptcy.
If you are married, you don't have to file a joint bankruptcy with your spouse. You can choose to file for bankruptcy alone, although you still have to include your spouse's income on some bankruptcy forms.
Married couples who file a joint bankruptcy in Kentucky can “double” the exemption amounts. This means if you and your spouse file a joint bankruptcy, you may each claim the full exemption amount for any property belonging to you. Note: you can only claim an exemption on property that belongs only to you.
Deciding to file a bankruptcy is an important decision. It is best to talk to a lawyer before you make that decision.
If this is your scenario, we advise you to contact a lawyer. We do not suggest representing yourself.
Bankruptcy can appear on your credit record for 10 years. This can make it hard for you to get credit during that time. But if you are thinking about bankruptcy, then your credit might already be bad, so filing bankruptcy can make it easier for you to fix your credit sooner by discharging many of your debts.
Yes. Many people think they can’t own anything for a while after filing for bankruptcy. This is not true. You can keep your exempt property and anything you get after the bankruptcy is filed.
But, if you get an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors if it is not exempt. You have to report this to the bankruptcy trustee assigned to your case and your lawyer if you have one.
For more detailed information about Chapter 7 and Chapter 13 bankruptcies go to: https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics